David Laws said the Lib Dems would target the top five per cent of earners under new proposals

Taxpayers earning £60,000 would be stripped of higher rate pensions tax relief under radical plans that the Liberal Democrats want included in the Budget.

One of Nick Clegg’s closest allies last night stepped up demands that George Osborne raise the threshold at which people start paying income tax to £10,000.

In a move that will worry middle-class families, David Laws said the Lib Dems would pay for the move by halving the higher rate of tax relief on pension contributions from 40 per cent to 20 per cent.

The former Cabinet minister said the Lib Dems would target the top 5 per cent of earners, which equates to those earning around £60,000 and above. He also signalled a wholesale assault on higher earners, as the Lib Dems seek to axe a host of tax reliefs and allowances.

The plan threatens to ignite a Coalition row as the Lib Dems attempt to bounce Mr Osborne into support for those on low incomes.

The Chancellor has already indicated that he would not countenance an end to pensions relief for all higher rate taxpayers, those earning over £43,000. He is unlikely to be keen to target anyone earning less than £100,000.

But in an intervention sanctioned by the Deputy Prime Minister, Mr Laws said higher earners have done too well out of the tax system.

In an interview with the BBC’s Newsnight programme, Mr Laws said: ‘In the past, virtually all of the tax relief has gone to the very most affluent people in society.’ He criticised the way some wealthy people get 40 per cent tax relief on pension contributions and then only pay 20 per cent on their pensions in retirement because their income is lower.

‘What we’ve been doing as a nation is subsidising the most affluent people when actually you’d think we’d be subsidising people on lower incomes.’ Mr Laws, the former chief secretary to the treasury, added: ‘We can make changes that take away some of the subsidies that are going to the top 1 per cent or 5 per cent of the income distribution and get them to where they’re really needed – those on low and middle incomes.’

Nick Clegg angered Tories when he called for quicker action towards the £10,000 income tax threshold

He said that acting to raise the income tax threshold would ‘bring to an end this period of austerity’.

Mr Clegg angered Conservatives last month when he made a speech calling for the Coalition to move further and faster than Mr Osborne was planning towards the goal of a £10,000 income tax threshold.

Tomorrow the Deputy Prime Minister will use a party political broadcast to renew his demands for a £10,000 threshold, saying it would deliver a £700 a year tax cut ‘for ordinary working people’.

He will say: ‘Pressure on family finances is reaching boiling point and people need help.’